Wall Street waits for wage gains amid U.S hiring binge

WASHINGTON (MarketWatch) — The U.S. has added at least 200,000 jobs a month for 10 straight months to mark the longest streak since 1995. But with Wall Street now viewing 200,000-plus gains as the new normal, investors have shifted their focus to something else: how much workers earn.

The amount of money employees earn each hour has risen much slower than usual since the nation exited recession in mid-2009. Unless wage growth picks up, economists say, the U.S. is unlikely to shift into a higher gear despite the upsurge in new jobs.

Here are five things to watch in the December employment report:

Wages, wages, wages

The annual increase in hourly pay has been stuck in a narrow range of 1.8% to 2.1% for the past four years, just two-thirds as fast as normal. Yet economists look for wage growth to push up to the 2.5% or even 3% range in 2015, putting it more in line with historical trends.

Hourly earnings shot up 0.4% in November to nudge the 12-month pace of wage gains to 2.1%, just a notch below its post-recession high. Analysts expect a 0.2% increase in hourly pay in December.

Anything less would be disappointing. Most economists believe the surge in hiring and falling unemployment rate should force companies to bid up wages in the competition for new workers.

Yet as the Federal Reserve pointed out in December, there is not “clear evidence of a broad-based acceleration in wages.” Expect the central bank to keep a key short-term interest rate near zero until it’s convinced wages are on the up and up.

Hiring trends

The U.S. probably created a net 230,000 jobs in December, according to economists polled by MarketWatch. That would mark a big drop from a preliminary 321,000 new jobs in November — one of the largest gains since the recession — but it would be close to the 241,000 average through the first 11 months of the year.

More important is the composition of jobs.

The past year saw a shift toward higher-paying jobs from lower-paying ones. Retailers, restaurants and shippers such as UPS and FedEx almost always add lots of jobs in the last month of the year. But it would be a good sign if hiring in well-paid segments such as manufacturing, construction and the professional ranks all continued to rise.

Unemployment

The official unemployment rate has tumbled to 5.8% from 8.6% three years ago and economists see it falling another tick to 5.7% in December. At this stage of the recovery, though, the so-called U6 unemployment rate bears even closer watching.

The U6 rate stood at 11.4% in November. It’s much higher because it also includes people who want a job but can only find part-time work as well as those who’ve gotten too discouraged to look.

While the U6 rate has receded from 17% five years ago, it’s still 3 percentage points above its prerecession level. If the U6 rates starts to fall faster, it would be a clear bill of health for the labor market and a sign that wage growth is ready to roar.

Size of the labor force

The percentage of working-age Americans 16 and over has stabilized since April at just a hair under 63% following a sharp decline that begin after the onset of the Great Recession.

The rate could drop further still as retiring baby boomers leave the workforce. Yet if the percentage continues to hold steady or even rises, it would be a sign that jobs have become plentiful enough or that wages are rising fast enough to pull more people into the labor force.

December surprise

The final month of the year sometimes produces employment tallies that veer wildly from Wall Street estimates. In 2013, for example, the U.S. added only 84,000 jobs in December to mark the smallest gain since 2011. And in 2010 the economy added just 71,000 jobs in December after averaging 189,000 in the previous two months.

Poor weather like the severe cold snap that occurred in December 2013, or difficulty adjusting for seasonal hiring, are some of the factors that can confound government economists.

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